Plaintiff Judicially Estopped from Pursuing Claims Not Disclosed in Bankruptcy

In Weakley v. Eagle Logistics, 2018 WL 3188663 (11th Cir. June 29, 2018), the Eleventh Circuit considered what “facts and circumstances” surrounding a plaintiff’s failure to disclose a pending lawsuit in bankruptcy proceedings will allow the lawsuit to be dismissed on judicial-estoppel grounds.

The plaintiff, Timothy Weakley, had filed two separate lawsuits against a number of defendants, arising from the termination of a contract he had to haul freight for one of the defendants and the repossession of a tractor trailer he had leased from another. After filing the lawsuits, Mr. Weakley petitioned for Chapter 13 bankruptcy protection. He did not, however, disclose either of the pending lawsuits in any of his sworn disclosures in the bankruptcy case.

The district court granted summary judgment to the defendants in both cases based on the doctrine of judicial estoppel, which gives a court discretion to dismiss a pending civil claim when the plaintiff fails to list it as an asset in a bankruptcy proceeding. The Eleventh Circuit affirmed in a per curiam opinion issued by Chief Judge Ed Carnes and Judges Marcus and Rosenbaum.

In the Eleventh Circuit, district courts must apply a two-part to determining whether a plaintiff is judicially estopped from pursuing a civil lawsuit. First, the court must determine whether the plaintiff “took a position under oath in the bankruptcy proceeding that was inconsistent with the plaintiff’s pursuit of the civil lawsuit.” If so, then the court must decide whether the inconsistent positions “were calculated to make a mockery of the judicial system.”

Generally, and in Mr. Weakley’s case, the first question is easily answered. The failure to disclose a lawsuit, and the claims in that lawsuit, as an asset in a sworn disclosure in a bankruptcy case is inconsistent with having asserted those claims—and an entitlement to damages—in the lawsuit.

It is the second prong that presents the harder question for courts. The Eleventh Circuit provided some guidance last year in Slater v. U.S. Steel Corp., 871 F.3d 1174 (11th Cir. 2017) (en banc). There the court overruled its prior “precedent that allowed courts to automatically infer a plaintiff’s intent to mislead based solely on the plaintiff’s failure to disclose a civil claim in a bankruptcy proceeding.” Instead, a district court must “look to all the facts and circumstances of the case to decide whether a plaintiff intended to mislead the court.” Id. at 1186.

Here, although the district court reached its rulings before Slater was issued, its analysis was consistent with Slater: “The district court did not infer Weakley’s intent to mislead the court based only on his failure to disclose but instead made its determination based on the facts and circumstances relating to the bankruptcy filings and nondisclosure.” Among those facts and circumstances was that Mr. Weakley “not only failed to include the two lawsuits in his initial bankruptcy filings but he also failed to include them in any of the six separate amendments that he made to his schedules and filings during the bankruptcy proceeding.” Indeed, Mr. Weakley did not amend his bankruptcy filings to disclose the two lawsuits until the defendants in both lawsuits had asserted his failure to disclose as grounds for dismissal. Further, not only could Mr. Weakley benefit financially at his creditors’ expense by concealing the two lawsuits, but he “had disclosed as assets in the bankruptcy proceeding two other lawsuits he had filed, both of which were of much lesser potential value than the two nondisclosed ones, which together sought damages in excess of $14,000,000.”

Given these facts, the district court did not abuse its discretion in reasoning that the failure to disclose the two higher claim lawsuits while disclosing the other two lesser claim ones “indicates a motive to exclude the potentially more lucrative, non-exempt [lawsuit assets] from the bankruptcy proceedings.” It also was proper for the court to consider the fact that Mr. Weakley had filed four other bankruptcy petitions and therefore “should have been familiar with the requirements.”

The court rejected out of hand Mr. Weakley’s assertion that his voluntary dismissal of the Chapter 13 petition (after the defendants moved for summary judgment, of course) mooted the judicial-estoppel issue. As the court explained, “To guarantee Weakley and others in his situation that, if caught, they could always undo the application of the judicial estoppel doctrine would render it toothless.”

Stacey Mohr

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